Investment research firm Morningstar rates 529 plans in their annual “529 College Savings Plans Research Paper and Industry Survey”. They recently announced their top plans from the 2013 survey, although it appears the full study and state-specific analyst reports are only available in their paid Premium section. Below, I have listed all of the top-rated plans from each of the 2010-2013 survey years, including which plans were consistently top-rated all four years.

Morningstar now uses a Gold/Silver/Bronze rating scale for the top plans and Neutral/Negative for the rest. (In 2010 and 2011, they employed the same methodology but used Top, Above Average, Average, Below Average, and Bottom. Top is now broken up into Gold and Silver, and Above Average is now Bronze.) The criteria include five P’s:

People. Who’s behind the plans? Who are the investment consultants picking the underlying investments? Who are the mutual fund managers?

Process. Are the asset-allocation glide paths and funds chosen for the age-based options based on solid research? Whether active or passive, how is it implemented?

Parent. How is the quality of the program manager (often an asset-management company or board of trustees which has a main role in the investment choices and pricing)? Also refers to state officials and their policies.

Performance. Has the plan delivered strong risk-adjusted performance, both during the recent volatility and in the long-term? Is it judged likely to continue?

Fidelity Investments recently made a 40% reduction on the management fees for their direct-sold 529 Index Portfolios, with total expense ratios now ranging from 0.19-0.29%, down from 0.25-0.35%. Fidelity runs 529 plans based in New Hampshire, Massachusetts, Delaware, and Arizona. From the press release:

The index portfolio fee reduction applies to all Fidelity-managed direct-sold plans including The UNIQUE College Investing Plan, Fidelity’s nationally distributed plan, offered by the State of New Hampshire; the Massachusetts’ U.Fund® College Investing Plan; the Delaware College Investment Plan; and the Fidelity Arizona College Savings Plan. Total fees for the 529 Index Portfolios, including underlying mutual fund expenses, now range from 0.19 percent to 0.29 percent of assets, down from 0.25 percent to 0.35 percent. Unlike several competitor plans, all Fidelity direct-sold 529 college savings plans continue to have no annual account fees, low-balance fees, or fees to receive paper statements.

This should also serve as a reminder that Fidelity does offer low-cost index options in addition to their (inferior in my opinion) higher-cost actively-managed portfolios. The choices can be confusing – for example their “Portfolio 2030 (Fidelity Funds)” has a total expense ratio of 1.01%, whereas their “Portfolio 2030 (Fidelity Index)” has a total expense ratio of just 0.25%. You can change your investment option by sending in a form, usually limited to once a year unless you change beneficiaries.

I think people are getting more aware of the impact of fees on performance, and this move makes Fidelity’s plans more competitive with other top 529 plans. See rankings by Morningstar and SavingforCollege.com.

There are also Fidelity-branded credit cards that credit 1.5% cash back (Visa) and 2% cash back (American Express) towards any Fidelity account. I choose to have mine directed to a 529 account, specifically their New Hampshire UNIQUE plan which they advertise as their national plan (you can live in any state, but your state’s plan may have better tax perks). I have also opened plans from Utah (lowest costs, flexible options) and Ohio (inflation-protected bonds as investment option) for my new kiddo and deposited her birthday gifts there.

Stanford University is offering a free open online course “Finance of Retirement & Pensions” taught by Joshua Rauh, Professor of Finance, running 10/14-12/13. Here’s the course description and a video:

In this eight-week course, you will learn the financial concepts behind sound retirement plan investment and pension fund management. Course participants will become more informed decision makers about their own portfolios, and be equipped to evaluate economic policy discussions that surround public pensions. The course begins with the principles of financial economics, such as the distribution of outcomes when investing in stocks, bonds, or annuities. These serve as the building blocks for an understanding of different retirement strategies that can help you improve your asset allocation. Finally, the course applies these principles to government programs and policies.

There is no actual course credit earned, but there is a competition at the end of the class where the top 5 teams with the best ideas for pension reform will get to present them at the Stanford Graduate School of Business, all expenses paid! Via NY Times.

Right now, freshmen are moving into dorms all around the country and parents are scrambling to pay the bills. I’ve written about how many students don’t pay sticker price on college tuition, but I recently ran across another statistic that tracks the phenomenon. It’s called the tuition discount rate. The version compiled by the National Association of College & University Business Officers (NACUBO) uses this definition:

Basically, this measures the upfront tuition discount given directly from private universities, thus excluding outside scholarships, tax breaks, or subsidies. The NACUBO tuition discount rate for 2012 was 45% and has risen every year for the last six years. From digging around their website, from 1990 to 2002 the average tuition discount rate increased from 26.7 percent to 39.4 percent. Then things stabilized somewhat until it started rising again in 2007. In rough numbers, over the last 15 years the discount rate doubled from 25% to 50%.

The Georgia Institute of Technology and Udacity.com are partnering together to offer an accredited master of science degree in computer science (press release). What makes it special is that this MSCS will be from a top-tier university, 100% online, and the full tuition cost for all coursework will be under $7,000. Georgia Tech believes that it can pull this off due to advances in technology and the resulting ability to maintain an instructor:student ratio of 1:100 rather than 1:10.

Anyone can take the courses online, but if you want the accredited degree and grades you’ll still need to gain admission into the program. As AT&T is funding the 2014 pilot program, it appears that most initial students will be from AT&T and other corporations affiliated with Georgia Tech, with enrollment hopefully ramping up in future years. Still, this is a big step in the evolution of online education, and especially good news for those looking to get further education but can’t afford to be a full-time on-campus student.

If this is successful, it’d be natural to wonder about a cheap, 100% online bachelor’s degree from a major public university (not some regionally accredited/for-profit diploma mill). I can’t help but keep recall this excerpt from Is College a Lousy Investment? by Megan McArdle:

In Academically Adrift, their recent study of undergraduate learning, Richard Arum and Josipa Roksa find that at least a third of students gain no measurable skills during their four years in college. For the remainder who do, the gains are usually minimal. For many students, college is less about providing an education than a credential—a certificate testifying that they are smart enough to get into college, conformist enough to go, and compliant enough to stay there for four years.

Will such online degrees maintain the same prestige just with a lower price tag, or will it just devalue the entire concept of having a degree even further? Or will an on-campus degree always be seen as better?

People tend to assume that getting a college education is a good financial investment. But a new Brookings report Should Everyone go to College? [pdf] finds that the actual value of a 4-year bachelor’s degree can vary dramatically depending on factors such as field of study, type of college, graduation rate, and future occupation. As usual, I’m just plucking out the charts that I like from the study. As you read all this, remember that correlation does not mean causation.

The more selective the school, the higher the return on investment (ROI) as calculated by Payscale. Here the annualized ROI seems to average around 10%, while other studies have found it closer to 16%. Public schools tend have a higher ROI than private schools (remember that ROI isn’t in absolute dollars). The bad schools are pretty bad, as Payscale found that 1 in 5 have a negative ROI over 30 years.

The lifetime earnings of a graduate also varies widely with the type of major and subsequent occupation:

Total student debt was the only type of household debt that continued to rise throughout the recent recession while most households were de-leveraging, and is now second only to mortgage debt. You’ve probably heard the “trillion dollar” number in the news.

Below is a recent breakdown of the student loan balances. While a greater percentage of students now have debt, 70% of loan balances are under $25,000. Six-figure debt loads only make up less than 4% of borrowers.

LivingSocial is currently offering a $50 Gradsave gift card for $24 (expired). The GradSave College Savings Gift Card can be redeemed for a $50 deposit into any national 529 college savings plan. So if you’re already meaning to contribute some money towards a 529 plan, it’s basically $26 in free money. I bought one and requested it to be transferred it to my daughter’s existing Ohio CollegeAdvantage 529 plan. Limit 1 voucher per customer, beneficiary, account, savings plan, or 529 plan.

Additionally, GradSave.com is currently waiving all credit card processing fees on their gift cards as another start-up promotion. So, if you wanted to contribute say $1,000 towards your 529 plan, now you could earn cashback, points, or miles on your credit card for that amount (with no fees) instead of via check or bank account transfer. Also potentially handy towards spending hurdles on $500+ credit card bonuses.

A day later, credit card fees are no longer waived. The fees are rather high as well, even for bank transfers.

529 contributions can be taken out without penalty. If you withdraw any earnings for unqualified expenses, then you will be subject to income taxes as well as a 10% penalty. Still, it may be a lot of paperwork and/or headache unless you keep your records very clean and simple.

Online “open” education site Coursera has a free personal financial planning course starting January 14th, 2013. It will run for 7 weeks, requiring 3-6 hours of work per week, and you get (likely worthless) certification of completion at the end. I haven’t seen anything similar at the other major MOOCs, Udacity or edX. Here’s the course description:

This course was created to help those who cannot afford extensive planning assistance better understand how to define and reach their financial goals. It provides basic understanding so informed decisions can be made. The course can also be seen as a reference for individual topics that are part of personal financial planning.

Financial planning, in the broadest sense, is an effort to manage all aspects of a person / family’s financial affairs. Classically, that begins with planning family spending and extends through risk management (insurance), taxes, wealth accumulation, investing, and wealth distribution (retirement and estate planning).

I signed up as I’m interested in online education in general, and my hope is that it will be more interactive and engaging than just reading a good personal finance book. It appears to be based on a UC Irvine OpenCourseware course, which has all the modules online here. Interestingly, the course originated from a grant from the owners of the Certified Financial Planner (CFP) designation. However, if there aren’t good videos and/or assignments and it’s just a bunch of Powerpoint slides, then I’m going to be a MOOC drop-out.

Savingforcollege.com is a popular privately run site for researching and comparing 529 college savings plans. In June 2012, they updated their rating system which represents their “opinion of the overall usefulness of a state’s 529 plan based on many considerations.” The judgement criteria include:

Performance. They selected similar “apples-to-apples” portfolios with 7 different asset allocations from each plan and rated them based on historical performance. Rankings are updated each quarter.

Costs. Total average asset-based expense ratios among plans are compared, in addition to separately considering program manager fees, administrator fees, and annual account maintenance fees.

Features. This includes other factors that affect participants, including the ability of the plan change their investment options quickly if called for; creditor protection under the sponsoring state’s laws; availability of FDIC-insured options; minimum and maximum contribution restrictions.

Reliability. The appears to measure the likelihood of a good plan staying a good plan. Do they have experienced program managers? Does the plan have a good amount of assets? What is the quality of the documentation and reporting? How restrictive are the withdrawal and rollover processes?>/li>

Here is the full list of 5-Cap Ratings for each state, on a scale of 0 to 5 Caps. Note that there are separate ratings for in-state and out-of-state residents. Out of the 100+ different plans they rated, here are the 8 programs available directly to the public that attained the top 5-Cap Rating for both in-state and out-of-state residents (alphabetical order):

ScholarShare College Savings Plan (California)

Michigan Education Savings Program

Nebraska Education Savings Trust – Direct Plan

Vanguard 529 Savings Plan (Nevada)

New York’s 529 College Savings Program – Direct Plan

Ohio CollegeAdvantage 529 Savings Plan

Oregon College Savings Plan

Utah Educational Savings Plan (UESP)

In general, I would agree that the plans on this list are among the best, but remember to consider your in-state plan first for potential tax advantages.

Now that I have a renewed interest in college costs (read: a kid), I’m paying more attention to the ongoing student loan debt discussion. One major talking point is the rising cost, but there seems to be a big difference between the published or “sticker” prices and the actual prices paid by students after grants and scholarships. As illustrated by this SmartMoney article, only 1/3rd of private university student pay the full sticker price, and the most attractive students get the best aid packages. Therefore, I wanted to find information comparing the differences between actual and sticker prices. The results were surprising:

Passion can actually be a controversial subject when it comes to the early retirement / financial independence discussion. If you truly love your work, then why ever stop working? Alternatively, what if your passion is racing cars or playing basketball? The odds of making a living doing either is very slim. So is the answer to maximize yourself financially (even if you hate it) until you can pursue your passion in retirement?

Ken Robinson is an Professor of Education who argues that passion and creativity are the key for transforming education and the economy. He wrote a book called The Element: How Finding Your Passion Changes Everything that expands on his views and also includes many stories of people finding their passion. I find his ideas interesting and added this book to my reading queue.

Of all places, I learned about Robinson in an interview inside Costco’s monthly magazine for members (emphasis mine):

Costco Connection: Can you define what you mean by finding one’s element for readers who haven’t read your book The Element?

Ken Robinson: The element is finding that point where talent meets passion. Both are important. If you’re in your element, you’re doing something for which you have a natural aptitude. You get it. I’m not suggesting that you have to be the best in the world or the best in history, but you get it and you have a natural feel for it.

I know people for whom that’s true in every type of work. Aptitude takes many different forms. But being good at something is only part of this. To be in your element, you really have to love what you’re doing. If you love something that you’re good at you never “work” again. And you can tell. If you love something, time changes when you’re doing it. An hour feels like five minutes. But if you’re doing something that you don’t care for or doesn’t resonate with your own particular energy, then five minutes feels like an hour.

I really like this idea of time relativity (having it fly by also known as a “flow” state) as it really applies to me and many activities. It also reminds me of the following Venn diagram:

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